Assessment of proposal to cut APD by 50% in Scotland shows likely overall fall in revenue

Date added: May 17, 2016

An assessment of the Scottish Government’s plans to cut the rate of Air Passenger Duty (APD) shows that the aviation industry’s analysis has not accounted for the impact of a fall in domestic tourism. The 50% cut in APD proposed would have the effect of damaging the Scottish economy and reducing funding for public services. The report “APD Cut: A Flighty Economic Case” challenges claims that reducing APD by 50% will lead to sufficient economic growth to cover the short-fall in revenue from the tax cut. In reality, cheaper tickets will encourage more Scots to take cheap foreign trips. The amount of money they take out of Scotland on these extra trips is likely to be larger than the amount brought in. The inbound tourists with greater spending power than typical domestic tourists are the least likely to be sensitive to airline ticket prices. In a buoyant economy, the increase in outbound trips is likely to exceed the increase in inbound trips. The case for business growth due to an APD cut appears particularly weak as business flights are driven by need and time pressures rather than price. They are known to be price insensitive. There could also be a reduction in domestic tourism by Scottish people, who instead take cheap foreign breaks, so reducing employment in Scottish tourism. .Tweet

New Report – APD Cut: A Flighty Economic Case

Report by Dr Craig Dalzell finds that the aviation industry’s analysis has not accounted for the impact of a fall in domestic tourism from the APD cut

16.5.2016 (Common Space)

A new Common Weal report argues that the case made by the Airport lobby for a 50% cut in Air Passenger Duty omits key facts, and in reality the tax cut could damage the Scottish economy while reducing funding for public services.

‘APD Cut: A Flighty Economic Case’, published by Common Weal and authored by Dr Craig Dalzell in response to the Scottish Government’s open consultation on its planned APD cut, can be accessed in full here.

It challenges the case made in two reports – from Edinburgh Airport and PwC on behalf of a number of aviation companies – that reducing APD by 50% will lead to sufficient economic growth to cover the short-fall in revenue from the tax cut. The two reports commissioned by the Airport lobby are the basis on which the case for an APD cut has been made.

Key points in the report include:

– The case for increases in tourist traffic is substantially undermined by the impact of cheaper tickets inducing more domestic tourists taking foreign trips instead.

– The spending power of the outbound tourists most likely to take more trips outside of Scotland is greater than the typical spending power of the inbound tourists most likely to take more trips to Scotland.

– The inbound tourists which have a greater spending power than typical domestic tourists are the least likely to be sensitive to airline ticket prices.

– Inbound tourists are generally more weakly linked to the economy than consumers more likely to be induced to leave which may lead to negative economic impacts even in the face of increased tourist numbers.

– The case for business growth due to an APD cut appears particularly weak as business flights are driven by need and time pressures rather than price.

– The case for an APD cut encouraging more visits to Scotland for the purposes of international trade and business deals is particularly weak as long haul business flights between the UK and the US and Asia is almost entirely price insensitive.

– If an APD cut results in a transfer of revenue from APD to corporation tax there may be deeper implications for the robustness of the Scottish budget under the devolved tax structure. This will be exacerbated in the case of corporate profits transferred outside of the UK entirely.

– The greater impact on the transport network due to increased traffic as well as the economic imbalances created by the APD cut inducing greater traffic in the Central Belt but little growth elsewhere.

– If the reduction in revenue due to the APD cut is not at least recouped in full then additional cuts in public spending may be required.

Dr. Craig Dalzell is an MSci and PhD in Laser Physics and Photonics. He is an activist and researcher and runs a politics and economics blog at thecommongreen.wordpress.co

See earlier

SNP to launch consultation on plan to cut Scottish air passenger duty by 50%, starting April 2018

March 14, 2016

The Scottish National Party (SNP) say they will cut Air Passenger Duty (APD) by 50% between April 2018 and 2021, if they win the Holyrood election on 5th May 2016. There is now a public consultation on this proposal. Control of APD is due to be devolved to Holyrood when the Scotland Bill becomes law, so it is no longer administered by the UK government. The Scottish Labour party has said a reduction would most benefit wealthier people, and should not go ahead. The majority of flights are taken by more affluent people, who can afford multiple short breaks as well as long haul holidays. Details of the APD consultation were announced by Finance Secretary John Swinney during a visit to Edinburgh Airport. The 50% cut in APD would start in April 2018, and be done in stages till 2021. The industry would like cutting APD to increase the amount of profitable high spending tourists to Scotland. They hope this would boost jobs and bring economic benefits. The amount of Scottish money taken out of the country on even cheaper flights is not counted, nor the jobs lost as Scots spend their holiday money abroad. Climate campaigners fear the net effect will be higher carbon emissions from Scottish aviation, if the ticket price is cut.

The community campaign, SEAT (Stop Edinburgh Airspace Trial) has set out why it is opposed to the Scottish Government intention to cut APD by 50%. Edinburgh airport is delighted that APD might be reduced, so increasing demand for more flights (= more profit). But those badly affected by aircraft noise are very concerned about the increase in the problems they suffer. Air Passenger Duty is needed, to at least partly make up for the tax breaks the aviation industry benefits from by paying no VAT, and no fuel duty. There is no VAT on purchase or servicing of aircraft. Many airports are owned by off-shore corporations, that pay minimal (or no) UK company taxed. Flying is already artificially cheap, and even cheaper, if the only tax is halved. While the Scottish government supports high speed rail links to London, which would cut carbon emissions if rail is used instead of air, they also aim to increase the number of flights, by cutting APD. That means significantly higher Scottish CO2 emissions. SEAT speaks up for people negatively impacted by aviation. The impacts on health from plane noise are now well known, and they are a cost to society. SEAT says cutting APD is unwise, and means putting profit for big business before people’s health, or the environment.Consultation ends on 3rd June.